Mao Nang Wala Ko'y Credit Card Sukad Masukad!

Sure, debit cards work just like cash. But just like credit cards, they make it easy to lose track and overspend. That's why the key to your budget may be cash.

By Liz Pulliam Weston

In a world where people use plastic to buy lattes, Stacy Jo McDermott feels like a bit of an oddball. But after running up $35,000 in credit card debt, the San Francisco Bay-area resident decided her relationship with money had to change.McDermott tried different ways to monitor and control her spending as she paid down her debt. The method that she hit on several months ago seems to work best: using cash.Every two weeks, after her paycheck is direct-deposited into her bank account, McDermott slips $125 into a checkbook register to pay for food. "About 70% of that goes for groceries," she said, "and about 30% for eating out."

Another $60 goes into her wallet to pay for gas. A final $30 stash is tucked into a zippered pocket in the wallet for what she calls "treat money"-- little splurges like a movie or a magazine.McDermott, a saleswoman, still carries an American Express card for business travel and a debit card for emergencies, like the new battery her car recently needed. Her monthly bills are paid with checks. Otherwise, though, she pays with the green stuff."When I use cash, I stop and think," McDermott said. "Do I really need this?"It's still plasticPlastic surpassed cash years ago as consumers' payment method of choice. People now use debit, credit or prepaid cards in 56% of their in-store transactions, according to the American Bankers Association, with cash comprising 33% of the transactions and checks 11%. Indeed, plastic forms of payment have plenty of advantages for money management:

They're convenient. You can buy what you need when you need it, as long as you're not already over your credit limit or overdrawn at the bank.
They're easier to track. With debit and credit cards, you know exactly what you've spent where. You can check your transactions and balances online and track them with personal-finance software like Quicken or Money. Dollars in your wallet, by contrast, tend to disappear without a trace unless you're diligent about writing down your purchases or retaining receipts.
They offer some protection. Credit cards, and debit cards with MasterCard or Visa logos, promise "zero liability" for consumers if the cards are lost or stolen. Credit cards also serve as a middleman in transactions, so that if you have a dispute with a merchant, you don't have to pay the charge until your beef has been investigated.

They give you rewards. Many credit cards and even some debit cards offer reward points, frequent-flier miles, cash back or other fringe benefits. The more you use them, the more rewards you pile up.

The envelope systemDebit cards, in particular, have soared in popularity in recent years, with their use for in-store transactions climbing 45% between 1999 and 2005. Since debit-card transactions come directly out of your checking account, you don't have to worry about facing a big, unexpected bill and possible finance charges at the end of the month, as you could with a credit card.Still, it's possible to overspend with a debit card, just in a different way. You might buy too much at the grocery store, for example, and discover too late that you don't have enough left for rent. Couples may find themselves in constant conflict because they've essentially spent the same dollars twice.The desire to earmark money for different purposes without worrying about overspending is what led Carolyn Pittman of San Dimas, Calif., to set up her cash-based envelope system nearly two decades ago, when her now-grown sons were still in elementary school.

Pittman keeps seven envelopes on hand, labeled:

Home, for small home repairs.

Entertainment, which includes weekly dinners out with her husband, Richard.

Gas. The envelope is kept in her car.

Trips, for weekend getaways.

Barber, for haircuts.

Clothing.

Food.

You can't spend what you don't have

"If I have the cash put aside, it's harder to overspend," Pittman said. With plastic, "you're tempted to buy everything you see."The Pittmans know something about money management -- Caroline was an accountant before becoming a full-time mother, and Richard works for a credit-counseling organization, ByDesign, as vice president of fund development.Richard Pittman said the system works well for the couple and occasionally wins them price breaks."I had my car repaired (recently) and got a discount for paying cash," he said. "Small businesses are often willing to do that to avoid paying merchant fees" that banks charge for plastic.The couple has credit cards for travel, but Pittman said she's never felt a need for a debit or an ATM card. She gets her cash the old-fashioned way: from a bank teller.Recently, one of them tried to convince her she needed an ATM card. Pittman said the teller asked her what she would do if she ran out of money on a Sunday, when the bank's branches were closed."I said, I don't run out of money because I budget my money," Pittman recalled. "If you have an ATM card, you can keep pulling out money whenever you want."

'If you can eat it, drink it or wear it...'

Credit counselors, who traditionally put their debt-strapped customers on cash-based spending plans, are now likely to view cash and debit cards as pretty much synonymous, said Dianne Wilkman, president of Springboard credit counseling.But Wilkman still advises using bills rather than plastic for certain expenses when she's counseling young people and others who are trying to create a money-management system that works for them."We say, 'If you can eat it, drink it or wear it,' " Wilkman said, " 'it's always good to use cash.'"High-school science teacher Brendon Bookman of Merritt Island, Fla., uses cash for those purchases -- and just about everything else.

Bookman has been without a credit card for more than a year after getting frustrated with soaring interest rates and high fees."You start out with a rate that's 2.9%, you're late with one payment and the rate goes to 20%, 30%," Bookman fumed. "It's so easy to get buried."Like McDermott, Bookman keeps a debit card for emergencies. He doesn't travel much and so hasn't needed to use a credit card (although airlines and some hotels and rental car offices do accept debit cards, should the situation arise). He doesn't use checks, either, since he finds it too easy to get overdrawn. His bills are paid with postal money orders, which can be replaced if they're lost or stolen.The day may come, Bookman said, when he'll get another credit card. But he said he'll insist on a low limit and pay it off in full every month. In the meantime, he likes knowing exactly where he stands by using cash."It's not always convenient," Bookman said, "but it works."3 keys to the cash systemIf you think you'd like to try a cash-based system, consider the following:Expect some trial and error. Any budget can take a while to perfect, and you may well find yourself raiding one envelope (or bank account) when another runs dry. For more information on how to budget, check out MSN's Learn to Budget Decision Center and read "A simpler way to save: The 60% solution.”

Don't carry big wads of cash.

You're not protected against loss or theft as you are with plastic. When Carolyn Pittman starts feeling nervous about how much cash is accumulating in an envelope, she deposits it in the couples' savings account and puts an IOU in its place.Mind your credit scores. Even if, like Bookman, you feel like swearing off credit cards forever, consider the future. You might want to apply for a mortgage, auto loan or other credit someday, and it will help to have good scores. To do that, you generally need to keep at least one open credit account. (For more on how credit scores work, see MSN's Decision Center on the topic.)

Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money.